If your business declined in revenue in 2020 and/or 2021, you may qualify for the Employee Retention Tax Credit (ERTC). The ERTC was passed by the federal government to help employers afford to keep their employees. Unfortunately, many business owners are not aware of the credit, think they are not eligible for it, or believe it has expired. In reality, the program was expanded several times and continued through September 30, 2021. Best of all, it is still possible to obtain the credit retroactively if you failed to claim it or you were previously told your business did not qualify. Here are some key facts you should know about the ERTC:
What Is the Employee Retention Tax Credit?
The ERTC is a fully refundable tax credit for W2 employees that remained employed during the period March 12, 2020, to September 30, 2021. It is equal to 50% of qualified wages (of the first $10,000) that eligible employers paid their employees in 2020 up to a credit of $5000 per employee for the year and 70% of qualified wages paid to employees for each of the first 3 quarters of 2021 up to a credit of $7,000 per employee per quarter.
Why Would a Business Want to Claim the ERTC?
Unlike other COVID-related relief programs, the ERTC provides funds that do not have to be paid back and can be used for any purpose. That means cash for businesses to fund operations and capital expenditures, pay back other loans, and reduce the need for additional financing.
Who Is Eligible for the ERTC?
Businesses and non-profits, including colleges and universities (added in 2021) are eligible if they were completely or partially shut down due to governmental orders or experienced a significant decline in gross receipts during the pandemic.
To be considered as having a significant decline in gross receipts for 2020, employers must demonstrate a decrease of 50% in revenue in any quarter compared to the same quarter of 2019. In 2021, it is a decrease of 20% in revenue compared to the same quarter in 2019.
The credit can be applied on a wage basis (e.g., per week), if it is demonstrated that the effect occurred during that pay period. Importantly, employers must apply and qualify quarterly for the credit. Each quarter must show a drop in revenue compared to the same quarter in 2019. However, employers can elect to use the quarter immediately preceding the quarter they are claiming. For example, to claim the ERTC in Q2 2021, instead of comparing the second quarter of 2021 to the second quarter of 2019, the business can choose to compare the first quarter of 2021 to the first quarter of 2019 instead.
How Much Is the ERTC Worth?
In 2020, businesses that employed less than 100 full-time employees in 2019 can claim up to $5,000 per employee for the calendar year. However, in 2021, that amount was increased to a maximum of $21,000 per employee for businesses that employed less than 500 full-time employees in 2019.
Can Businesses That Received Paycheck Protection Program (PPP) Loans Apply for the ERTC?
When the CARES Act was first passed, businesses had to choose between the two programs but that was subsequently changed. Employers can claim the ERTC even if they received a PPP loan. However, if the business applied for loan forgiveness, the credit cannot be taken on the same qualified wages. Any wages that did not fall under the loan forgiveness can be eligible.
How Long Do Businesses Have to Claim the ERTC?
The program ran from March 12, 2020, to September 30, 2021. If you have not filed for the credit, you have three years to file Form 941-X (Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund) to get the credit. Accordingly, you have until 2023 to obtain the credit for quarters in 2020 and until 2024 to apply for the credit for 2021.
Do You Need Assistance with Filing for the ERTC?
As noted above, employers must apply quarterly and each time they must prove that their business was affected by government orders, or their revenue decreased in the specified amount compared to the same quarter in 2019. The documentation requirements are extensive, and audits are likely to be troublesome if you do not comply with all rules and regulations. By hiring an experienced consultant, you can ensure that your business is eligible for the program, complies with all rules, and submits audit-proof filings.
Funding Forward has helped 13,000+ businesses affected by Covid-19 secure over 1 billion dollars. We work with your staff and financial team, handle the paperwork, and respond to auditor questions so you can concentrate on operating your business. Leave the details and stress of tax filings to us. Contact us today for a consultation.
Disclaimer: The information contained in this site is provided for informational purposes only and should not be construed as legal advice on any subject matter.